It feels like there’s hype and fear in equal measure surrounding artificial intelligence (AI).
More and more companies are talking about revving up their performance by developing and deploying AI-driven solutions.
Microsoft has recently launched Copilot, an automated, intelligent assistant. Meanwhile, Nvidia is reaping billions of dollars every quarter from selling the chips that can power AI software.
But it’s not all opportunity.
28 countries signed the Bletchley Declaration earlier this month. It acknowledges AI’s ‘potential for serious, even catastrophic, harm’.
We can leave the more existential threats to The Terminator for now. Instead, let’s look at how you can make sure your investment portfolio remains safe from some of the threats of AI.
The key is to look at a company’s intellectual property (IP).
Threat of artificial intelligence to intellectual property
We’re already witnessing concerns over the threats posed by AI to some forms of IP.
A group of artists have launched lawsuits against two AI companies. They allege that generative AI models are being taught to copy their style of work and are now capable of creating new imagery. The artists’ fear is this will deprive them of future income.
Authors like John Grisham have launched lawsuits of their own, alleging that using their work to train AI models is an abuse of copyright.
Then there’s the concern about AI-generated ‘deep fakes’. These digitally-altered videos or images can be indistinguishable from genuine content. It’s led to a group of senators proposing the No Fakes Act. If passed, the Act will attempt to provide protection to the owners of IP, be it a movie, an actor’s image or voice.
But it’s going to be complex.
Different types of IP
Creative IP – written, recorded, drawn, painted or filmed – is at risk because, quite simply, it’s out there. In fact, it’s often for sale to the public.
For creative work, the IP is only enforced by the owner seeking compensation for its abuse. In the case of the authors suing OpenAI, this includes damages to the tune of $150,000 per infringed work. But only with a potentially lengthy and costly legal action first.
Corporate IP, on the other hand, often resides within a company’s own systems. It could be in the form of programming that’s not offered to third parties, and which can’t be examined or understood. Or it might be the historical customer data that the owner can mine to predict how to serve clients better.
There’s a quality difference between IP which creators charge to share – like books or art – and IP which is used to create products and services, but isn’t shared in the process.
Some industries understand this better than others.
Music learnt the cost of sharing digital content early on. The response to piracy was the birth of streaming. It was also the reimagination of gigs as vast revenue-generating machines and not expensive loss-leaders for CD sales.
How to evaluate your portfolio
When it comes to your own investments, it’s worth thinking about where your portfolio might be exposed. Are the businesses in your basket able to defend their IP?
I’ve always worried that, even in the best of times, media content industries are hit-driven. And, if it were easy to generate hit after hit, there’d have been a lot more Madonnas and Elton Johns over the years.
Where IP consists of know-how that remains firmly under the creator’s control, that feels like a good place to be.
Take CAE, the Canadian aircraft simulator and pilot training services provider. CAE provides years-long training contracts across multiple aircraft manufacturers’ airframes. This means its market position is protected by substantial IP and know-how.
US-based West Pharmaceuticals is a major global manufacturer of elastomer components – the rubber end of an injectable drug vial. The business has been behind every major drug advancement to date and its drug master file is one of the single most referenced documents in the FDA regulator’s archives. As a result, the company’s IP and tech capability provide a large moat against any potential competitors.
As with all technologies, there will be winners and losers when it comes to AI.
When it comes to investing, the winners will look like companies who are able to harness AI to improve their performance. But they’ll also include companies that have something unique and inherent that can’t be copied using technology, however intelligent.
This article isn’t personal advice. If you’re not sure what to do, ask for financial advice. All investments fall as well as rise in value, so you could get back less than you invest.
The information provided is the fund manager’s view and not individual stock recommendations.
Leave it to an expert – HL Select funds
Funds are a great way to take the hard work out of picking shares.
HL Select is a group of three funds focused on a small number of shares with long-term growth potential.
Steve Clayton is Head of Equity Funds at Hargreaves Lansdown and created the HL Select fund range. Every stock in the fund is carefully picked and the funds are continuously reviewed and monitored to help maximise your returns.
Find out more about HL Select Funds
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This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
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